China boosts oil trading visibility, market power: Russell

(Clyde Russell is a Reuters columnist. The views expressed are his own.)

SINGAPORE – If you are looking for evidence that China is becoming more assertive in the global economy, then the trading of physical crude oil in Asia is a good example.

Chinaoil, the trading arm of state-controlled giant PetroChina, bought a record 55 cargoes in the Middle East crude market in April, beating its previous high of 47 in October last year.

These cargoes were bought in the Platts window, the physical trading platform that allows buyers and sellers to match cargoes at the close of the trading day, while contributing to the market’s price discovery process.

While many cargoes are traded outside of the Platts window, it’s the place to go if you want to be seen to be active in the market, and the strong buying by Chinaoil suggests they want the visibility and influence their heavy trading is bringing.

When Chinaoil snapped up 47 cargoes in October for December delivery, the market buzz was that the trader wanted the physical oil to help fill strategic storage in China, while at the same time taking advantage of the movement in prices sparked by the buying spree to profit from offsetting paper trades.

This time round, it’s perhaps harder to see a clear motivation, especially since Chinaoil this month sold some of the cargoes it had purchased in April.

One line of thought is that the trader has been happy to see higher premiums for physical oil as it plays arbitrage with the paper market, another is that it is part of efforts to shuffle profits between different parts of PetroChina.

With weak crude prices, the upstream part of PetroChina will most likely have seen margins come under pressure, while the downstream refining and retail operations will have experienced rising profits.

Refining margins in Singapore, the regional benchmark, have strengthened in recent weeks, and were at $9.36 a barrel on Monday, higher than the $8.45 15-day moving average and well above the $6.56 365-day moving average.

Chinaoil’s buying may help cut some of the profit from refining by making the crude bought by the downstream part of the company from the trading arm more expensive.

CHINA BOOSTS COMMODITY TRADING VISIBILITY

But no matter what the reasons are for Chinaoil stepping up its visibility, there is no doubt about the impact.

“When they bought those cargoes in October, I thought that was a once-in-a-lifetime thing,” said a oil industry executive, speaking on the condition of anonymity as he isn’t authorized to talk to the media. “But then to do it again, wow.”

It’s not just Chinaoil that is being far more visible in Asian crude oil markets, with Unipec, the trading arm of refining giant Sinopec, also boosting its presence in the Platts window.

What this means is that the trading arms of the major international oil companies, as well as the trading houses such as Vitol and Trafigura, are losing some of their influence in the market.

Physical oil trading in Asia used to be almost like a club, with a relatively small number of players who all knew each other, where personal connections counted and everybody wanted to keep as many of their activities as possible out of the public spotlight.

By using the Platts window in such an overt fashion, the trading arms of the Chinese oil majors appear to be announcing their presence, and are flexing their muscles.

In some ways this is a logical progression of China’s rise to the largest importer of crude oil in the world, having overtaken the United States last month.

The increased visibility of Chinaoil and Unipec also seems to fit with what is happening in other commodities, such as iron ore, coal and copper.

Chinese trading firms are playing larger roles in those markets, and it isn’t drawing a long bow to suggest that this may be part of an effort to ensure that China’s position as the world’s largest producer, consumer and importer of commodities is reflected in its market pricing power.

(Editing by Joseph Radford)

Copyright (2015) Thomson Reuters.

This article was from Reuters and was legally licensed through the NewsCred publisher network.

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